Gary Gensler, who once offered the “Blockchain and Money” course at MIT, under the leadership of the US SEC, has successively wielded regulatory sticks on Uniswap Labs, Coinbase, and stablecoins.
Original title: “Gary Gensler, the regulator who knows Crypto best from Circle and Uniswap”
Written by: Lu Chang
Gary Gensler, this is a name that shakes the crypto world. Since he took office as the chairman of the SEC in April this year, the control measures he imposed on Crypto have caused the Crypto market to fluctuate frequently.
In early September, news broke that the SEC was investigating Uniswap Labs. Since then, the SEC threatened with litigation and demanded Coinbase cancel the launch of its lending products. On October 5th, Circle, the issuer of the stable currency USDC, stated that it had received an investigation subpoena from the US SEC law enforcement agency in July 2021. The SEC requires Circle to provide “documents and information about certain assets, customer plans, and operations.” Uniswap, Coinbase, Circle, these familiar names, have all been influenced by Gary to varying degrees.
In April of this year, when Gensler assumed the new SEC, many crypto investors felt a little gratified. Compared with many bureaucrats who don’t know much about the crypto world, Gensler is known as “the person who understands the most crypto in the regulatory system.” This supervisor, who is a professor of global economics and management practice at MIT, once set up “Blockchain and Money” at MIT. “Course, this course has been viewed more than 4.1 million times on Youtube .
But the subsequent regulatory sticks have made investors give up this unrealistic idea. “The Economist” issued an article saying that the US SEC Chairman Gary Gensler hopes to carry out a “taming finance” operation to strengthen the supervision of the encryption industry, but a lot of funds are needed to achieve this goal.
Gensler’s regulatory policy may be more stringent than any previous SEC chairman . “History tells you that it won’t last long outside (regulation). In the final analysis, finance is related to trust,” he once commented on encrypted finance. In his eyes, the regulation of the entire crypto world seems inevitable: “(Crypto) is worth about 2 trillion US dollars in the global level and nature, if there is any relevance in 5 or 10 years from now, That is within the framework of a public policy.”
Frustrated crypto upstart
As the first crypto trading platform to be listed on the US stock market, Coinbase’s position in the industry is decisive. The financial report shows that Coinbase made a profit of $1.6 billion in the second quarter. Looking back at the supervision of Coinbase, it is not difficult to find that the dispute between crypto upstarts and traditional finance has intensified.
In mid-August, Coinbase stated in its blog that the platform will soon provide cash loans secured by BTC in 17 states in the United States. A Coinbase spokesperson said that the new “borrowing” feature will be launched in the fall. In addition, Coinbase is also planning to explore more Crypto and will support more states. “We are actively seeking permits in more states in the United States.”
In the field of crypto trading, lending is a very common product. In compliance trading platforms, investors can find similar functions on platforms like Gemini, which allows users to borrow their Crypto back to the exchange to gain far Higher than the interest rate of a traditional savings account. Coinbase plans to launch the Lend product, whose function is to allow users to hold a stable USDC position and get 4% APY (as the starting interest rate).
But things are not going well. In early September, the SEC warned that the product was a security, and Coinbase should stop the product, and pointed out that if it insists on launching it, it will face SEC prosecution. Although Gensler has taught blockchain courses, he himself stated that he has never purchased BTC or any other Crypto. Almost all of his net assets are in the stock market, which makes the increase in the value of the stock market in his immediate interest . There is a voice from outside that the SEC’s plan to stop Coinbase is probably because the company’s products threaten the interests of the bank.
In response to this regulatory action, Coinbase did not yield at first. Its CEO Brian Armstrong tweeted 21 consecutive tweets, complaining to the public that the SEC refused to communicate with Coinbase on the matter: “We are committed to complying with the law, and sometimes the law is not clear. If the SEC wants to issue guidance, we are also happy Follow. But under this circumstance, they refused to provide written opinions to the industry, and closed the door and implemented intimidation policies. No matter what their theory is, it feels like they are fighting for territory and power with other regulatory agencies.”
It is worth noting that, so far, the SEC has not yet announced the detailed rules for Coinbase’s lending services to be recognized as securities. Coinbase’s chief legal officer Paul Grewal said in a blog that he found it difficult to understand the SEC’s identification of borrowing as a security. “The (SEC) did not point out how this conclusion was reached.”
The argument of “grabbing turf” is groundless. In August this year, Gensle publicly stated that the top supervisory authority on Wall Street needs Congress to grant it additional powers to supervise the huge and growing Crypto market . Speaking on the Aspen Security Forum, he said that the SEC “has taken and will continue to take action to allow the authorities to go as far as possible. Certain rules related to Crypto have been properly resolved. “. At the same time, he also pointed out, ” We need more congressional powers to prevent transactions, products and platforms from falling into regulatory loopholes. We also need more resources to protect investors in this growing and turbulent industry. ” .
The game between Coinbase and the SEC is well known in the crypto world, and many regulatory officials are shocked by the SEC’s attitude. “For a long time, the SEC’s attitude has not been so tough,” said James Cox, a professor at Duke University School of Law.
On September 20th, according to Bloomberg News, Coinbase has terminated its plan to launch lending functions.
Supervisor Gensler
Gensler has worked at Goldman Sachs for 18 years, and his knowledge of financial markets far exceeds most supervisors. After entering the regulatory system, his employment history includes the Ministry of Finance, CFTC, and SEC. After the collapse of Enron, he participated in the drafting of the Sarbanes-Oxley Act. The law tightens accounting standards and imposes stricter supervision on listed companies in order to reduce the occurrence of major risks such as Enron.
During the Obama administration, Gensler entered the CFTC work. He saw the huge risks of the over-the-counter market, forcing him to enter a stricter regulatory framework. Gensler believes that “ only through strong and wise supervision and active enforcement mechanisms can we fully protect the American people and keep our economy strong. ” Under his leadership, the SEC conducted a post-financial crisis A series of regulatory measures.
The game between crypto upstarts and traditional finance is unfolding, and Coinbase is not the first product to be suppressed in the crypto industry. In early September, the Wall Street Journal stated that the SEC is investigating Uniswap and that SEC officials are trying to understand how Uniswap is marketed. They said that the DeFi platform is not immune to legal scrutiny. In addition, they also want to know information about crypto lending.
“Code is law” although this phrase is widely circulated in the crypto community. But as Dr. Craig Wright has repeatedly emphasized, ” Code is not the law, and the government will not tolerate someone trying to circumvent their law for a long time. ” Behind all code projects, there are people writing code. The financial supervision department obviously does not stand on the position of the crypto community. The current situation seems to indicate that the supervision of DeFi is being carried out with great fanfare. Before the DeFi Summer in 2020, this field was not noticed by the regulation.
The regulation of DeFi is already on the line. The impact of this on the crypto community is still unknown. An investment banker once said that “technology that affects several generations has already appeared, and this may part ways with public policy for a period of time”, and this attitude of alienation from regulation has caused him to worry, “I want to point out, Historically, financial innovation outside the framework of public policy will not prosper for a long time.”
Gensler is not opposed to Crypto investment, ” Although I am neutral about this technology, and even interested in it-I spent three years (in university) teaching related courses and gradually integrated into it-but I am concerned about the protection of The position of investors is not neutral ”, but he also warned investors in the crypto market that “in many cases, investors cannot obtain strict, balanced, and complete information”.
“If someone wants to speculate, that is their choice, but as a country, we have a responsibility to protect these investors from fraud,” but he warned that investor protection is not strong enough. “Frankly, this time is more like the Westfall,” he explained.
Supervising the helmsman, can he steer the encryption industry?
During his studies at the University of Pennsylvania, Gensler joined the sailing team and served as a helmsman. In order to be competent in this role, he has succeeded in losing weight and controlling weight, in order to make the boat get a better weight ratio. Now that the wave of Crypto is coming, as the chairman of the SEC, he seems to have once again returned to the identity of the helmsman.
Compared with BTC, which has been in operation for more than ten years, the financial innovation of stablecoin is undoubtedly more elusive to the supervisory authorities. In just a few years, stablecoin has become a huge market of more than 120 billion U.S. dollars, and most of its growth has been completed in the past year.
The regulatory policies for stablecoins are also the most complicated and elusive. In June of this year, Randal K. Quarles, Vice Chairman of the Federal Reserve Regulatory Commission, spoke highly of the US dollar stablecoin and recognized the innovation of stablecoins. “I think we must fully consider the potential benefits of stablecoins, including the possible role of USD stablecoins in supporting the U.S. dollar in the global economy.” However, the SEC’s attitude towards stablecoins is different. Give positive affirmation and require strong supervision of stablecoins.
Gensler believes that the current stablecoin market is like the era of Wildcat Bank. Due to the wide variety of currencies, he cannot see the long-term sustainability of Crypto. At a hearing in September, Gensler assured members of Congress that the top Wall Street regulator is working overtime to develop a set of rules to regulate the volatile Crypto market while balancing the interests of American innovators.
Between 1836 and 1865, Wildcat Bank co-existed with state banks, and the banks would issue private U.S. dollars convertible into circulating gold and silver coins, and the reserves of these deposits were backed by government bonds or real estate bills. During this period, a large number of wildcat banks went bankrupt, leaving a worthless “dollar” for depositors.
Private dollars in the era of Wildcat Bank
But this does not represent the unanimous views of the political circles on Crypto, and there are also different voices within it. US Senator Pat Toomey once criticized the SEC’s regulatory policies. In his letter to Gary Gensler, Pat Toomey stated that investors in new fields need clear rules and guidance, not strict enforcement and fines. “My concerns about the SEC’s lack of regulatory clarity have been recognized by others, including the SEC Commissioner. In a recent enforcement action, SEC Commissioners Hester Peirce and Elad Roisman stated that they failed to explain what digital assets the SEC has It is the securities that are disappointed.” He pressured Gensler to clarify whether stablecoins meet the definition of securities.
Finance has been disrupted by the explosion of innovation, and Gensler must figure out how and to what extent it will be regulated. Although the market may not be large enough to be considered as a systemic risk, regulators still need to come up with a plan to deal with the risk. “I don’t think I will do that.” Gensler believes that if investors want to understand the relevant risks, the SEC has the responsibility to release some information for their attention and comments, conduct economic analysis, and truly understand what investors are talking about.
Since Gensler took office, the dispute between the crypto world and traditional finance has become more public. Perhaps in the short term, regulation will have a negative impact on market sentiment to a certain extent, but in the long run, establishing a sound regulatory framework may enable the Crypto world to become more mature and healthy.
